TARP Was Not a Success

Writing in the Washington Post, Samuelson claims that “[w]hen the entire financial system succumbs to panic, only the government is powerful enough to prevent a complete collapse.” Clearly, Samuelson has never taken an economics course.

First, when the financial markets tumbled in 2008, the correct reaction would have been to allow the financial system to naturally collapse and allow it to rebuild itself by reallocating resources to those entities that were best suited to do that. Instead, the government stepped in and provided the TARP fund, which propped up zombie corporations and companies that had mismanaged resources. Such activity allowed bad business practices to continue.

Second, the government does not exist to prevent businesses from failing. When the Founding Fathers designed the Constitutional system of government, they laid out a system that allows the American citizen to perform at his best with extremely limited government intrusion.

Nowhere in the Constitution is Congress tasked with bailing out corporations that perform badly. But in our modern government, where the Constitution has been so badly perverted to mean anything to any politician that wants to do prevent the free market from doing what it does best, the politicians in D.C. created a fund that now exists to prevent favored businesses from failing.

Such a fund is nothing to celebrate. This fund has thus far denied the marketplace from providing its most sacred function of ensuring allocation of scarce resources. When signals are distorted in the market place, as they were with the bailouts provided from the TARP program, it does not allow investors and consumers to have all the information about the firms they do business with.

While Samuelson celebrates that this program did not cost the taxpayer as much as it was originally forecast to cost, he misses the key point that such programs should never exist in the first place. The only good cost of such a program is zero, and the only way to ensure that such a program does indeed cost zero is to never implement it in the first place.

As politicians in D.C. slap themselves on the back from supposedly “saving” the finance market, they should be blamed for staving off a free market correction. If politicians in D.C. wanted to ensure that the financial markets got back on their feet correctly, they should have stayed out of the collapse entirely.

Samuelson should read the wisdom that is offered daily from George Mason University economist Russ Roberts at CafeHayek.com. As Roberts stated, “remember that the cost of the TARP isn’t the cost to taxpayers. Even if banks paid back every single penny, the cost of the TARP is that it reduces current and future prudence.”

Sure, Congressional inaction on this matter would have caused some level of pain in the marketplace, but that pain is part of the correction process. And if that pain is the cost of correcting the markets, then it is worth it to ensure that bad business practices are flushed from the system.

What started in 2008 was a long and drawn out process that will never deliver the results that a correction without government intervention would have delivered.

All Congress did was prolong the agony and make the correction slower. They wanted a “soft” landing, and they got one, with growth still less than 3 percent and unemployment still at about 9 percent almost three years later.

TARP was not successful in removing the bad actors from the financial markets, which would have happened had a recovery free of government intervention occurred. Instead, TARP served to prop them up and to allow them to continue with their financial chicanery. Therefore, the government has only proved that it was not powerful enough to ensure a robust recovery that would cleanse the financial markets of its bad apples.